A Transaction Cost Analysis of Dutch Hospital Care: Contracting between hospitals and health insurance companies in a deregulated environment

This study shows that transactions between hospitals and health insurance companies in a deregulated environment will develop towards more sophisticated coordination mechanisms. A transaction cost analysis shows that ultimately the classic hospital, with a full range of services and products, which contracts health insurance companies for all hospital products will disappear. Economic behaviour of hospitals and health insurance companies in a deregulated environment results in segmentation, specialisation and selective contracting. Health insurance companies with a limited number of transactions are recommended, from an economic point of view, to use a lean hybrid governance structure or even a classic contract. However, market governance has the disadvantage that instability in transactions is expected and eventually results in financial losses. Large health insurance companies can efficiently coordinate segments of hospital care in a hierarchy (vertical integration). All-in-one contracts and shared ownership are efficient alternatives in a hybrid governance structure.